Are HSAs Protected from Creditors?

Yes:

Except as provided in subsection (c), any funds or other assets payable to a participant or beneficiary from, or any interest of any participant or beneficiary in, a retirement plan which is qualified under §§ 401(a), 403(a), 403(b), 408 and 408A, or an Archer medical savings account qualified under § 220 or a health savings account qualified under § 223 of the Internal Revenue Code of 1986, as amended, are exempt from any and all claims of creditors of the participant or beneficiary, except the state of Tennessee. All records of the debtor concerning such plan and of the plan concerning the debtor’s participation in the plan, or interest in the plan, are exempt from the subpoena process.

The only exception is a spouse, former spouse, child, or other dependent  who has the right to receive part or all of the benefits payable under the account pursuant to a qualified domestic relations order (QDRO).

This the same state statute that protects IRAs from creditors (with respect to both participant AND beneficiary). Qualified plans, such as 401(k) accounts, are protected from creditors under federal law, namely ERISA and the Internal Revenue Code.

Creditor protection is another reason to consider adding health savings accounts to your asset protection and retirement planning arsenal. Some background on HSAs is here.

Posted by Joel D. Roettger, JD, LLM, EPLS

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